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Certain employees are exempt from many of the wage and hour protections provided under California law, including overtime premium pay, minimum wage, reporting time pay, and meal and rest period requirements. Among the exemptions to these protections, under both state and federal law, is the executive exemption. Executive employees who meet the requirements for the executive exemption are exempt from California overtime, minimum wage, reporting time pay, and meal and rest period laws.
A person is employed in an executive capacity if:
- His or her duties involve the management (e.g. directing the work of employees or planning or controlling the budget) of the enterprise he or she is employed by or management of a recognized (permanent) department or subdivision of that enterprise;
- He or she customarily directs the work of two or more other employees in that enterprise (in charge of all the employees in the unit he or she manages as opposed to a small subset of employees working in the unit);
- He or she has the authority to hire or fire other employees or his or her suggestions and recommendations regarding the hiring, firing, advancement, or promotion of other employees is given serious consideration;
- He or she customarily exercises discretion and independent judgment;
- He or she is primarily engaged in duties that meet the test of the exemption. and
- He or she earns a monthly salary equivalent to no less than two times the state or other applicable minimum wage for full-time (40 hours per week) employment.
See California Code of Regulations, title 8, section 11010(1)(A)(1).Discretion and Independent Judgment Requirement
As to satisfying the requirement that the executive employee exercises discretion and independent judgment, the employee must evaluate possible courses of conduct and thereafter makes decisions based on that evaluation rather than merely following or choosing among prescribed company procedures. If an Employer's "policies and procedures so tightly restrict the manager's ability to make an independent judgment on matters of any consequence, the manager will not be exempt." Industrial Welfare Commission Opinion Letter, Exemption: Executive, Applicability of Federal caselaw, 1993.07.06.Primarily Engaged in Executive Duties Requirement
"Primarily" means more than one-half of the employee's work time is spent engaged in exempt work. See California Code of Regulations, title 8, section 11010(2)(K). In Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, the plaintiff, a former grocery store assistant manager, brought an action to recover unpaid overtime pay, contending she should have been classified as a "nonexempt" employee because she regularly spent more than half her work hours performing "nonexempt" tasks such as bagging groceries and stocking shelves. A jury agreed and awarded Heyen over $26,000 in overtime pay. On appeal, Safeway argued that the trial court failed to properly account for hours Heyen spent simultaneously performing exempt and nonexempt tasks—i.e., "actively ... manag[ing] the store while also concurrently performing some checking and bagging of customer grocery purchases." Safeway argued that all hours during which Heyen simultaneously performed exempt and nonexempt tasks should have been classified as "exempt" time. The California Court of Appeal, Second District, disagreed, ruling that an employee who spends more than half her time bagging groceries or checking out customers is engaged in nonexempt activities despite having the responsibility to concurrently supervise subordinates' work.
If the employee only occasionally manages the enterprise, or only rarely makes personnel decisions such as those involving the hiring and firing of workers, the employee will not qualify for the exemption. Much attention should be paid to the frequency at which the employee engages in such activities and the amount of time the employee spends in a given timeframe on such activities. The determination as to whether an employee is exempt is done on a case-by-case basis depending on the specific facts of the employment situation.
Factors for determining whether executive duties are the employee's "primary" duty include:
- The relative importance of the exempt duties as compared with other types of duties;
- The amount of time spent performing exempt work;
- The employee's relative freedom from direct supervision; and
- The relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee (e.g. whether the exempt employee earns significantly more than nonexempt employees who perform some of the same tasks as the exempt employee). Code of Federal Regulations, title 29, section 541.700(a).
The salary paid to the exempt employee must be a predetermined amount. Deductions to the salary may not be made when the employee is willing and able to work but work is not available. However, deductions to the salary may be made when the employee is absent for personal reasons. Industrial Welfare Commission Opinion Letter, Exemption: Executive, remuneration test, 1997.04.28.Determining Whether An Employee is an Executive Employee
"Executive" duties typically involve principal figures of the business. The top manager of a store very often qualifies for the exemption, and the label would likely also apply to a corporate executive officer. However, the performance of executive duties are often not limited to a single individual in a company, and so other managers, officers, or employees with similar duties may also qualify.
If an employee predominantly performs genuine executive duties, she undoubtedly plays a key role in the business and her work is sufficiently valued by the business that she is probably paid enough to also meet the salary requirement. Regardless, the employee must meet both the duties and remuneration requirements in order to be an exempt employee. If she meets the exemption, then the employer can require her to work more than forty hours in a given workweek and the employer will not have to pay the employee overtime compensation.
The classification of a worker is not determined by title but instead is determined by both salary and duties. Thus, it is irrelevant if a nonexempt employee agrees to work overtime without additional compensation; additional compensation would still be required by California law.
Under California law, exemptions from statutory mandatory overtime provisions are narrowly construed with an eye to promoting wage and hour protections. The burden is on the employer to prove that an exemption applies to the employee. Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 794-795.Highly Compensated Employees
In addition, "highly compensated employees" (who perform office or non-manual work but who might not otherwise qualify for the executive, administrative, or professional duties exemption) are also exempt if they earn $107,432 or more per year and frequently perform an executive duty. Code of Federal Regulations, title 29, section 541.601.Contact Us
If you have not been granted proper overtime wages, or if you believe your employer or former employer has otherwise violated your rights, call the experienced employment law attorneys at Kokozian Law Firm, APC or Contact Us via our online form.